When we talk about passive income, the conversation always centres on safety. I mean, what good is a passive-income stream if it will be gone tomorrow? This is why any TSX stock that we rely on for this passive income must have staying power. Itâs not always an easy thing to determine, but itâs well worth the effort.
BSR Real Estate Investment Trust (TSX:HOM.UN) is an $850 million real investment trust (REIT) thatâs been around since 1956. Please read on as I list reasons why this TSX stock is a safe place to go for passive income.
There are 18 states that fall withing the Sunbelt region of the United States. This region has been fast-growing, with low unemployment rates and a young population. BSRâs core markets include cities within the Sunbelt that have some of the lowest unemployment rates in the U.S., including Austin, Dallas, and Houston.
BSR owns 31 multi-family real estate properties in these booming areas. So, itâs no wonder that BSR has been so prosperous. For example, BSR has grown its revenue from $64 million in 2018 to $119.5 in 2021 — thatâs an 87% growth rate over that period. Mort recently, the growth is continuing strong. In fact, in the latest quarter (Q3 2022), revenue increased 11%. Also, net operating income increased 10%, and adjusted funds flow from operations increased 27%.
Being in the right location has definitely been a core part of BSRâs success. Looking ahead, continued strong fundamentals are foreshadowing continued success. For example, in the latest quarter, strong rental demand enabled double-digit rental increases. A 12.3% rate increase on new leases, combined with a 10.3% rate increase on renewals resulted in a blended 11.2% rate increase.
These strong fundamentals have driven strong returns at BSR. For example, the companyâs return on equity (ROE) is approximately 40%. Also, itâs return on investment (ROI) is 17%. These returns are due to the strong industry fundamentals. But theyâre also due to strong management over at BSR.
Managementâs stated objective is to provide sustainable and growing distributions through both organic rental growth and acquisitions. Thatâs great, as it coincides with our goal of generating passive income. Right now, BSRâs dividend yield is a solid 3.63%. Also, its payout ratio is a healthy 19% — clearly, that dividend has room to go higher.
Lastly, BSRâs debt load, or leverage, is reasonable. As a REIT, we fully expect the balance sheet to be filled with debt, as buying and/or building properties is a very capital-intensive business. But BSRâs debt to total capitalization is at a reasonable 50%. This reflects the companyâs strong financial management and conservatism. And itâs a very key selling point for this passive-income stock.
Of course, rising interest rates are a consideration for all businesses these days. The rise has been so fast and so sharp that it surely will have at least some negative ramifications. But it doesnât have to get in the way of this passive-income stream.
BSR has taken actions to negate or lessen the effects of rising rates. For example, itâs spread out its debt maturities over time. Currently, there are no debt maturities until 2024. Also, BSR has hedged its interest rate exposure through the use of interest rate swaps. Essentially, this means that all of its debt is fixed or economically hedged to fixed rates at a weighted average rate of 3.4%.
Lastly, BSR is currently trading below book value. This, combined with the strong returns that BSR has been generating, leads me to my conclusion that BSR is a really great opportunity today. Thus, we can get a solid passive-income stream at bargain prices.
The post Why Iâm Buying This TSX Stock for Passive Income appeared first on The Motley Fool Canada.
Canadaâs inflation rate has skyrocketed to 6.9%, meaning youâre effectively losing money by investing in a GIC, or worse, leaving your money in a so-called âhigh interestâ savings account.
Thatâs why weâre alerting investors to a high-yield Canadian dividend stock that looks ridiculously cheap right now. Not only does it yield a whopping 7.9%, but it pays monthly!
Hereâs the best part: Weâre giving this dividend pick away for FREE today.
Claim your free dividend stock pick
* Percentages as of 11/29/22
Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool recommends BSR Real Estate Investment Trust. The Motley Fool has a disclosure policy.
Seize the market opportunities!
Start trading with a reliable broker.
Let an expert help you get started!
The Motley Fool Canada
Seize the market opportunities today! Start trading with a safe and reliable broker.
Let's help you get started!